KL's MRT tender raises questions on local bidders

by Trinna Leong

KUALA LUMPUR (The Straits Times/ANN) - The upfront financing of 90% means that local firms are unlikely to lead the construction, say analysts.

A tender for the third phase of Malaysia's MRT system has surprised industry analysts, with the government asking bidders to provide 90 per cent upfront financing for the over RM30 billion (S$9.7 billion, US$7.2 billion) project. The government also wants bidders to have handled urban projects costing RM10 billion in the past decade.

Another surprising feature is that the winning bidder would receive payment eight years later, with the payment spread out over 30 years.

This has led to analysts saying that Malaysian companies are unlikely to be able to take part as lead contractors, because of the hefty financing requirement.

The city rail's Phase 1 and 2 were awarded as regular tenders, with local joint venture firm MMC Corp and Gamuda managing the construction and handing out contracts. The MRT 1 project cost RM21 billion, while MRT 2 is estimated to cost RM40 billion.

The MRT 1 line has started operations while MRT 2 is still under construction. The MRT 3 project, on the other hand, will be awarded as a turnkey contract with the winning bidder coming up with the financing, and having the option to give out subcontracts.

Some critics have suggested that MRT 3, also called the Circle Line as it will encircle Kuala Lumpur, is clearly designed to allow for China's deep-pocket government-linked contractors to win.

When Prime Minister Najib Razak launched the opening of MRT 1 last year, he hailed it as proof that Malaysian companies could deliver a large-scale rail project and bragged about shaving off RM2 billion in costs from the original budget.

For MRT 3, government agency Mass Rapid Transit Corp (MRT Corp) said it is changing the project model to save billions of ringgit in interest and project costs, as 80 per cent of works involve expensive underground tunnelling and stations.

"If we have the opportunity to save the people's money, saving its costs by using this method, why not? We must do better than Line 1 and 2," MRT Corp's chief executive officer Shahril Mokhtar told reporters on Monday (Nov 13).

In response to queries from The Straits Times, MRT Corp admitted that is is keen to attract overseas bidders.

"The proposed project structure for MRT 3 involving a turnkey contractor which also has the responsibility of securing the financing for the project is aimed at attracting foreign companies who may provide better financing for the Circle Line," it said.

The MRT 1 and 2 lines were funded by DanaInfra Nasional, a Finance Ministry-owned firm.

DanaInfra had RM20.7 billion of government-guaranteed debts in 2015, most of it to fund the rail project. That sum spiked by almost RM9 billion, or 43.4 per cent, last year.

Datuk Seri Shahril said MRT Corp may head back to DanaInfra for funding if no successful bidder emerges for MRT 3.

Industry analysts have in research notes raised doubts that the financing proposal would attract local bidders.

Nomura said the "huge financing commitment likely rules out any Malaysian contractor being the lead contractor due to relative balance sheet risks".

Opposition lawmaker Tony Pua also questioned the tender's financing proposal. "While the financing cost is indeed important, what is more important is the actual project cost. If the actual project cost is, say, 20 per cent higher, then a 2 per cent lower financing cost will still cost MRT Corp more in the end," he said.

Mr Shahril denied that the tender will sideline Malaysian firms, as they could form a consortium with local or foreign partners.